What Is A Bridging Loan?
What is a Bridging Loan?
A bridging loan, or bridging finance, is a short-term loan that can help you finance the purchase of a new property while you sell your current property.
How does a Bridging Loan work?
Let’s say you’ve found the house you want, but haven’t sold the one you’re in. You’ll need finance to meet the gap between receiving funds from the sale of your existing home and buying your new property. It’s essentially giving you a line of credit to cover the ‘bridge’ between purchasing the new property and receiving settlement funds on the old.
Once you’ve sold your property, you’ll have 12 months to repay the cost of the ‘bridge’.
Managing Deposits
When you do find the property you wish to buy, the Vendor will seek a deposit from you to ‘seal the deal’. Unless you have excess funds sitting in your bank account, this can often prove a challenge. Thankfully, we can arrange a Deposit Bond for you, which is used in place of a cash deposit.
When’s the best time to sell?
Whether it’s location or lifestyle, there are many reasons you might want to sell. But your timing may not necessarily coincide with the perfect property market conditions, so it’s important to know a few things about the market.
- Seller’s market: when the demand for homes is greater than the number of homes available for sale. In a seller’s market you’re more likely to sell your property quickly.
- Buyer’s market: when the number of houses available for sale is higher than the number of buyers who are looking to buy. In a buyer’s market, it’s all about patience and being realistic about price.
The real estate market changes with the seasons in Australia. Typically, spring is the most popular time to sell.
But there are benefits to selling your home during quieter periods, like winter. With fewer properties to choose from, more potential buyers will get to see your place.
We recommend:
- Keeping an eye on weekly property sales in your area of choice; and
- Staying up to date with the wider economy and interest rate movements.
- Consulting with a Mortgage Broker to get a range of options from different lenders.
To determine the best time to sell, you’ll need to consider your personal circumstances, reasons for selling, market conditions and seasonal factors. A mortgage broker will be able to assist you in balancing all these factors.
Should you sell first, or buy first?
Most people sell their old home first and then buy their new home with the available equity. But there are times when buying first may suit you better.
Selling before buying:
| Pros | Cons | TIPS |
|---|---|---|
| You’ll know the exact amount you’ll have to put towards your next purchase. You don’t have to rush it and can wait until you’re happy with the sale price of your property. You won’t need to apply for a bridging loan to finance both properties – and you won’t have to pay two loans at once. | A house that suits your new needs may not be on the market, meaning you’ll have to move out without a permanent place to live. You might have to pay for rent and have the added expense and hassle of moving twice. Prices might go up after you sell and you might be priced out of the market, or not able to find your dream home for the right price. | Know exactly how much equity you have in your current home (see more on this below). Scope out housing availability and property sales in your area of choice ahead of time to gauge the market. Be prepared for potential delays in the sale and ensure you can manage the financial pressure during this period. |
Buying before selling:
| Pros | Cons | Tips |
|---|---|---|
| Helps to avoid moving into a rental property and paying multiple moving fees, changes to utilities, etc. You don’t feel rushed to find a new house to buy in a hurry. Takes advantage of a rising market and you’ll potentially get more for your money and make more from your home sale. | You may need a bridging loan to finance the new property. Interest on bridging loans is more than the interest on our standard term loans. It may force you into selling your original property at a lower price if you need the money to meet your loan payments. Bridging loans must be repaid within 12 months. If you can’t sell your existing home for the price you need or expected, you may have to find more funds to cover the shortfall. If you’re making a conditional offer on a property, you might need to make a higher offer to convince an owner to hold the property while you sort out your circumstances. | Try and negotiate a longer settlement period on the sale of your home, so you have more time to find a new house and only have to move once. Organise to rent your home from the new owner to give you more time to find a property. Stay with family and place your goods in storage to avoid rental costs while you look for a new home. Put your goods in storage and rent furnished accommodation to save yourself the hassle of moving and unpacking twice. |
Bridging with ‘End Debt’ versus ‘No End Debt’
If you have plenty of equity in your current home, selling it and repaying your Bridging Loan often leaves you with no remaining debt – this is called ‘No End Debt’.
This is the ideal scenario because the lender knows there’s no ongoing debt, so you won’t need to provide payslips or go through standard affordability checks.
However, if the Bridging Loan leaves some debt remaining (known as ‘End Debt’), you’ll need to provide proof of income and pass the usual affordability assessment for the ongoing debt.
Get a broker involved:
Bridging finance can be complex, and getting it right is crucial. A mortgage broker can guide you through the process, ensuring you understand your options and secure a loan that meets your needs. They’ll help navigate affordability assessments, negotiate with lenders, and structure the loan to minimise financial stress during the transition. With expert advice, you’ll have peace of mind knowing your bridging finance is tailored to your situation.
Get in touch with the team at Aintree Group Wealth to book a consultation today.
This is general advice only and has not been prepared with your individual situation or needs in mind. For personalised advice, we highly recommend that you seek professional guidance from a qualified adviser.
